13 June 2023

Delivering better financial outcomes - roadmap for financial advice reform

The Albanese Government will adopt the bulk of Quality of Advice review recommendations to ensure Australians have access to reliable and affordable financial advice.

It was a Labor Government which introduced the Future of Financial Advice reforms and was instrumental in establishing the Hayne Royal Commission. The reforms announced today continue in that tradition of ensuring all Australians benefit from the financial system.

The success of superannuation means Australians are retiring with more wealth than ever before, with the average Australian having a balance of around $200,000 at retirement.

There are five million Australians approaching retirement that need assistance navigating the pension and superannuation systems.

These reforms aim to address the high cost of advice, better protect consumers, bolster ethical standards and ensure Australians can access helpful information that could make a meaningful difference to their quality of life in retirement.

The Government will develop legislation over the coming year to deliver this vital reform.

The package of reforms will be progressed in three streams:

Stream one – removing onerous red tape that adds to the cost of advice with no benefit to consumers

  • consolidating three different fee documents into one simplified document;
  • allowing more flexibility in how financial services guides are provided;
  • removing the safe harbour steps from the Best Interest Duty;
  • replacing the lengthy and legalistic Statements of Advice with a financial advice record for consumers that is more fit‑for‑purpose; and
  • strengthening transparency and protections for consumers by introducing written consent requirements for consumers before they purchase an insurance product that will result in a commission payment.

Stream two – expanding access to retirement income advice

The second stream will address the large and growing gap in the availability of retirement advice by expanding the provision of personal advice by superannuation funds to their members. This will allow funds to consider broader circumstances, such as their member’s Age Pension entitlements and family situation, when they provide advice on retirement matters.

The Government will also provide greater certainty for superannuation trustees concerning the payment of financial adviser fees at the member’s direction.

Superannuation funds are well‑suited to providing safe and quality advice to members as they are already expected to meet obligations to act within the best financial interest of their members. This will also help funds meet expectations under the new Retirement Income Covenant and elevate their standards of customer service to members.

Treasury will begin working with industry in coming weeks to finalise the implementation details of this stream.

Stream three – exploring new channels for advice

The final stream will explore the merits of expanding the provision of personal advice by other financial institutions. This will occur in conjunction with the second stream and alongside a review of the Code of Ethics for financial advisers.

A cautious staged approach prioritises areas of greatest need and manages the transition for advisers, institutions, and consumers.

Final positions on Delivering Better Financial Outcomes package are expected before the end of the year. The details of the package are available on the Treasury website.

The Government’s announcement today coincides with the planned introduction of legislation this week to implement the Government’s election commitment to better recognise the experience of long‑serving advisers. This measure will assist experienced advisers with a clean disciplinary record who have passed the adviser exam to continue to provide high quality financial to Australians.

Further detail on the Delivering Better Financial Outcomes package can be found below;

Removing regulatory red tape that adds to the cost of advice without benefiting consumers

  • The “Safe Harbour” steps, originally designed to protect financial advisors, will be removed from the Best Interest Duty with consultation to determine implementation details and the implications of adopting the remaining parts of recommendation 5 (accept in principle part of recommendation 5).
  • Ongoing fee renewal and consent requirements will be streamlined into a single form, and the requirement to provide a fee disclosure statement will be removed (accept recommendation 8).
  • Statements of Advice will be replaced with an advice record that is more fit‑for‑purpose, with consultation to determine the final design of the replacement (accept in principle recommendations 9).
  • More flexibility will be provided in how financial service guide requirements can be met (accept recommendation 10).
  • Standardised consumer consent requirements will be introduced to classify a consumer as a wholesale or sophisticated client (accept in principle recommendation 11).
  • Certain exemptions to the ban on conflicted remuneration will be simplified and some removed, including:
    • clarifying that monetary or non‑monetary benefits given by a client are not conflicted remuneration along with the removal of consequential exceptions (accept recommendations 13.1 and 13.3);
    • removing an exception to conflicted remuneration rules for the issue of financial products where advice has not been provided in the previous 12 months (accept recommendation 13.4); and
    • removing an exception to conflicted remuneration rules for agents or employees of Australian Authorised Deposit‑Taking Institutions (accept recommendation 13.5).
  • The Government will defer consideration of a review of time‑sharing schemes (recommendation 13.6), until after the completion of Treasury’s review into the regulatory framework for Managed Investment Schemes.
  • Standardised consumer consent requirements will be introduced for life, general and consumer credit insurance commissions (accept recommendations 13.7 ‑ 13.9).

Expand access to retirement income advice

  • The restrictions on collective charging will be amended to allow superannuation funds to provide more retirement advice and information to their members (accept in principle recommendation 6).
    • This will work with industry to consider adopting, and tailoring as needed, recommendations 1‑4, the remaining parts of recommendation 5, and recommendations 12.1, 12.2 and 13.2 to implement recommendation 6.
  • Superannuation trustees will be provided with legal clarity around current practices for the payment of adviser service fees (accept in principle recommendation 7).

Exploring new channels for advice

In conjunction with implementing recommendation 6, the Government will explore expanding the provision of advice by other institutions by consulting industry and consumer stakeholders on recommendations to:

  • Broaden the definition of personal advice (recommendation 1)
  • Remove the general advice warning (recommendation 2)
  • Allow non‑relevant providers to provide personal advice (recommendation 3)
  • Introduce a good advice duty (recommendation 4)
  • Amend the Design and Distribution Obligations (recommendations 12.1 and 12.2)

This consultation will also finalise implementation details for:

  • the design of the replacement for Statements of Advice
  • the implementation details and the implications of adopting the remaining parts of recommendation 5.
  • the Financial Adviser Code of Ethics
  • expanding access to affordable retirement advice.

Government consultation will test how these proposals might operate under different advice models, including digital advice models, and across sectors. Consultation will also consider practical policy design and implementation issues, including in relation to consumer protections.

The Government will issue its final response on the Delivering Better Financial Outcomes package later in 2023.